Good Evening Traders and Investors and thank you for joining me for another edition of the Magnelibra Markets Podcast, I’m your host Mike Agne and today’s episode #27 is entitled “Quits Index Signaling Trouble and Tech Earnings Seem Like Sell the Fact”
DISCLAIMER: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and may not be appropriate for all listeners.
Alright obviously the early morning data was going to set the initial tone, but all eyes were on the tech giant earnings after the bell today. Early trading began on a positive note as consumer confidence was higher than expected coming in at 114.8 and expecting 108.0 the highest reading since Dec. 2021…what zip codes are they polling we wonder? Job openings were up again to 9m expecting 8.8m and the Case Shiller HPIndex came in at 5.4% lower than expected by 3/10%. We also saw the Quits Survey and from the looks of things, this data tells us that there is trouble on the horizon.
What a an acceleration downward means for this index is that people are not voluntary leaving their current jobs, which means the prospects of being able to find another one, don’t outweigh staying put. So we kind of have contradictory data with the quits continuing to fall yet job openings increasing to 9m. We talked about this before, we do not believe for one second that there are 9m job openings, in fact we believe that number has been heavily skewed higher ever since covid. Its as if the BLS took the metrics pre covid and extrapolated them out to consider not only replacing all the workers that were laid off during covid and put a 2x factor on to the total openings to be filled, I.E. projecting a 2x increase in new jobs available, but we don’t buy it. We believe there aren’t as many good paying jobs available as they say and that job seekers are meeting constant layoffs, a battle which we believe will continue to worsen as the year goes on.
Speaking of worsen, well UPS announced today in their earnings release and just a few months after signing their contract agreement with the Teamsters, that they are now laying off 12k employees. UPS profits for the quarter were cut by more than half to $1.61Bn from $3.45Bn, revenue also came in lower than expected down 7.8% to $24.92Bn. UPS fell over 8.2% on the day to $145.06.
So the equity markets were immediately under pressure starting just after the European open and continued to sell off into the close prior to the release of the tech earnings for the day. Once the earnings came out one by one the Nasdaq futures took the brunt of the selling and the bulls once again were unable to hold the 17600 level. We liked the initial break and selloff around noon and the retest hold into the close, but earnings proved too much and it was all sellers as the level gave way and immediately traded down nearly 200 points trading down to the 17420 area:
The 21VWMA is down at 17150 and would be our main support now with the 17600 level the first real resistance and resell level. All in all the earnings here have set a negative tone for the equity markets to start the Asian session.
We hope our subscribers were able to read some of the options analysis for Google, Microsoft and AMD that we put out in our podcast yesterday as tonights post market moves thus far is jiving well with our pre earnings outlook. The tech bell weathers are all lower in after market trading. Here is how the data shook out from each of the big names that reported:
MSFT Earnings:
REVENUE $62.0Bn, EST. $61.14Bn
EPS $2.93, EST. $2.78
GOOGL Earnings:
REVENUE $86.31B, EST. $85.36B
EPS $1.64, EST. $1.59
AD REVENUE $65.52Bn, EST. $65.88Bn
OPERATING INCOME $23.7Bn, EST. $23.82Bn
AMD Earnings:
REVENUE $6.2Bn, EST. $6.13Bn
ADJUSTED EPS 77c, EST. 77c
OPERATING MARGIN 23%, EST. 23.2%
This tech weakness is also causing the spread between the SP500 futures and the Nasdaq futures to narrow as the SP is now outperforming on our 1 to 1 ratio spread chart:
If we are in the midst of the beginning of this buy the AI rumor of all these tech stocks but then sell the fact post earnings, then this spread could mean revert and its something we have kept an eye on for quite some time. One thing that concerns us with all these tech giants relying on the AI assisted boost to their prowess, exactly how does that work if they all benefit from AI, who really then benefits? Aren’t we going to see one company excel more than another? Won’t it lead to a massive war between these various companies? Is it only a matter of time before someone dethrones these bell weathers? History has proven that giants don’t stay number one indefinitely, but who will be the stand out from all of this AI mania? We feel that is yet to be determined, and that company that does win, may not even exist right now! So something to think about.
Alright, tomorrow before the open the highlight will be on Boeing, where options seem to be pretty even there around the $200 area with the straddle for Friday expiration right around $9.35 representing a move of 4.6% with the skew pretty balanced so this ones a toss up here as Boeing has been torched since the beginning of the year dropping from $260 down to $200 a loss of 30%. We would stay away from this thing here.
Two names to watch after the closing bell will be Qualcomm Inc (QCOM) and Met-life (MET). Qualcomm fallen about 10% off its highs and when we look at the $146 straddle its priced for a 6% move. The $150 strike seems like a decent pin but the overall recent bearish tone may keep the pressure on to the downside. As far as Met-Life, with all the Multi Family and Commercial RE taking hits, MET has some decent open interest at the $67 and $68 strike with the straddle trading $2.21 so around a 3% move expectation. Met-Life is 10% off its all time highs here and we wouldn’t be surprised to see this thing get hit here tomorrow with $67 being the support to stay above. Alright that is it on the earnings front, you guys should take a look at that graphic we put out yesterday by Earnings Whispers and formulate some good risk/reward setups to take advantage of all this earnings vol.
Let’s move now to the Subscriber Trackers and start of with today’s settlements. The notable moves in the bond market were that the curve was pancaked, flattened as the front end was modestly weaker while the longer end was much stronger up over a full point. The 5s30 spread lost 9.3bp while the 2s10s lost 7.1bp. Equity Index futures were lower across the board except for the Dow +124 while the Nasdaq lost -117.50 points. The dollar was weaker vs all the majors, energies were all higher on the day as well with the metals up slightly except for silver down -2.6 cents:
Here is a picture of the US bond market yield curve spreads:
As far as the Futures Model Tracker, it did add to the Nasdaq short and added another ZN future to the model positioning:
When we look at the MEGA8s Nvidia and Berk were the standouts today with Apple the weak link down -1.92%:
Alright that does it for today, tomorrow obviously the big data comes from the FOMC at 2pm Est. where its widely expected that rates will remain unchanged. We will see if Powell and Co have anything to say other than the usual double speak of data dependency and will look for any adjustments to the dot plots or any other items of note to hint at the future of interest rates. We also have in the morning ADP Employment, ECI and Chicago PMI so be on the look out for those data points as well.
Anyways, we hope you learned something today. Please subscribe, give a like and if you can try to send our work to someone else, so that they too may benefit from our analysis and insight. We have been in the trading trenches, taking gains, taking losses and learning the whole way for over 2 decades. We are taking what we have learned and prepackaging it to you, for you to digest, for you to contemplate and adapt your own trading and investing. Stick with us and we will change your perception so that you too can see the markets from the proper point of view…till next time, cheers.
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